A large percentage of transactions are now completed using a transaction card, rather than cash or checks. A small, but significant percentage of all such transactions generate losses due to improper usage of the cards. Such improper usage can include exceeding the credit limit of the card. The definition of improper use also includes continued purchases while failing to pay monthly minimum charges. Various fraud scenarios also contribute to this loss. For example, purchases are made with cards that have been lost or stolen. In addition, dishonest employees at a merchant can improperly create a transaction through the unauthorized use of an account number.
Many approaches have been implemented to reduce these losses. One of the earliest approaches used to combat these losses was to distribute a printed list of invalid cards. In use, the merchant would check the account number on the card presented for the transaction with the account numbers printed in the list. If the account number is listed, the transaction would be declined.
The use of such a printed list is effective in reducing a large percentage of fraud losses. Unfortunately, this approach has a few drawbacks. For example, a transaction card is often used almost immediately after it has been lost or stolen. This immediate use will occur before the card has been listed or before the list has been distributed.
Because of these difficulties, other, more sophisticated techniques have been implemented. One of the most effective schemes is to authorize every transaction through a real-time, on-line communication network. For example, an automated transaction terminal at the merchant can transmit the account number of the card presented for a transaction to a central processor. The account number of the card can then be checked against a current list of invalid card numbers stored either at the central processor or back at the card issuer.
This on-line scheme eliminates the lag time inherent in distributing printed lists of invalid cards. Furthermore, the cost of authorizing transactions is justified for high value transactions. However, for low value transactions, the losses tend to be lower and the benefits gained from on-line authorization do not justify the added costs and delay involved in obtained an on-line approval.
Accordingly, various approaches have been developed to authorize lower value transactions at the terminal, in an off-line manner. The simplest approach has been to provide the terminal with a transaction or "floor" limit. Any transaction having a value which is below that floor limit can be approved by the terminal. If the value of the transaction exceeds that floor limit, a request for authorization must be generated and transmitted to the central processor.
The floor limit selected for a particular terminal has traditionally been based on the type of merchant establishment and its location. The floor limit selected represents an attempt to balance the level of loss which will occur for transactions that are authorized by the terminal with the cost of transmitting the requests to the central processor.
In most systems, the issuer of the card has no control over the floor limit. More recently, a system has been developed wherein both the issuer and the financial institution that supplies the terminal to the merchant have a say as to the floor limit in the terminal. Such a system is described in U.S. Pat. No. 4,943,707, issued Mar. 14, 1989, to Boston and incorporated herein by reference. In this system, the terminal determines the transaction limit using data both stored in the terminal and data encoded on the transaction card. In the latter system, the data in the terminal used to calculate the transaction limit is also determined by the type and location of the merchant. This information is fixed in the terminal. While this approach successfully reduces some fraud losses, it cannot accommodate short term changes in the patterns of loss which occur at a specific terminal. For example, if a new employee is dishonest or follows sloppy procedures, the losses will immediately increase. Accordingly, it would be desirable to actively update the transaction limit in the terminal to maintain the desired balance between the level of risk and communication costs.
Another approach for reducing losses when a terminal authorizes transactions in an off-line mode is to provide the terminal with a list of invalid account numbers. Such a system was disclosed in U.S. Pat. No. 3,696,335, issued Oct. 3, 1972 to Lemelson. The latter approach required that the entire list of invalid cards be transmitted to the terminals. This approach has been found to be impractical because the list is quite long and therefore requires large data storage capacity in the terminals. The list would also take a long time to transmit to the terminals.
Various suggestions have been made to overcome these problems. For example, U.S. Pat. No. 4,558,211, issued Dec. 10, 1985 to Berstein teaches that the list can be reduced by geographical criteria.
Still another approach which has been suggested is disclosed in U.S. Pat. No. 4,943,707, issued Jul. 24, 1990 to Boggan, and incorporated herein by reference. In this patent, a system is disclosed for generating a data compressed version of the invalid card list. This data compressed version is much shorter and therefore requires less storage space in the terminal and can be transmitted faster. However, in certain cases, the cost of this approach still exceeds the benefits gained in reduction of loss. Accordingly, it would be desirable to provide other techniques for storing lists of potentially invalid cards which is not subject to any of the drawbacks discussed above.
Therefore, it is an object of the subject invention to provide an improved transaction approval system.
It is another object of the subject invention to provide a transaction terminal with enhancements for improving the effectiveness of the authorization process.
It is a further object of the subject invention to provide a transaction approval system wherein the transaction limit in the terminal can be varied.
It is still another object of the subject invention to provide a transaction approval system wherein the transaction limit in the terminal can be adjusted to reflect a desired level of risk of loss.
It is still a further object of the subject invention to provide a terminal which keeps a record of account numbers of certain transaction cards which were used in the terminal.
It is still another object of the subject invention to provide a terminal which keeps a local record of the account number of transaction cards in any transaction wherein the central processor declined to approve the transaction.
It is still a further object of the subject invention to provide a terminal which keeps a local record of the account number of transaction cards in any transaction where the value was below the transaction limit and the transaction was approved off-line.